research in motion sum of parts

Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) reports quarterly earnings on Thursday, December 20.  Given the outlook for continued losses, analysts at Raymond James view a sum-of-the-parts (SOP) analysis as the most reasonable way to value RIM. Their SOTP analysis points to a potential valuation range in the $7 – $17/share range. With the shares trading within this range, they maintain a market perform rating. Raymond James has a new report out on Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) today. We highlight their main points below.


Key metrics to watch.

With Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM)’s strategy to aggressively defend its subscriber base ahead of the BB10 launch, They forecast ASP to fall 13% Q/Q to $200 (consensus: $215). The analysts forecast overall gross margin of 22% (LY: 27%, LQ: 26%) and a third consecutive quarter of operating loss. They are looking for handset shipment of 8 mln (up 8% Q/Q) versus consensus of 7 mln and expect the subscriber base to remain flat from 2Q. They expect 3Q cash level to remain stable from 2Q level, consistent with RIM’s guidance.

Stock rally as market looks forward to BB10 launch. RIM shares have been on a tear since the BB10 launch event (to be held on January 30) was announced.

There is no official BB10 launch date yet, but Raymond James still expects that it will be sometime in February. RIM indicated that BB10 is currently being tested in the labs of over 50 carrier partners. Last week, RIM announced its BES license trade-up program, allowing enterprise customers to trade up their existing BES license to BES 10 on a one-for-one basis for free (until December 2013), providing an incentive to upgrade to BB10 devices in 2013. With the pending BB10 launch, near-term results may not matter so much.
BB10 economics uncertain but…

The ability for RIM to return to meaningful profitability will be an uphill battle (they estimate 18 mln BB10 units at good economics needed to break-even). But showing just a modicum of success might be enough to pique the interest of other players to partner or look more strategically at RIM in a world short on smartphone OS, in their opinion.


RIM currently trades at 0.4x C2013E EV/Sales and 5.2x EV/EBITDA versus the handset group which trades at an average of 1.1x EV/Sales and 8.2x EV/EBITDA.